Prima facie it looks like Infosys has once again disappointed in delivering on its guidance. While the September quarter numbers were in line with market expectations, the fact that the company did not increase its guidance despite its acquisition of Lodestone has in turn led analyst to believe that the company has lowered its organic growth by 1.5%.
However, the Infy management later clarified that the guidance numbers do not include Lodestone, which should add at least 1.5% to its turnover. Also earnings per share was revised lower from Rs 166.5 per share to Rs 160.6 per share (assuming a rupee-dollar rate of 53).
For the September quarter the company’s revenues increased by 2.6% quarter on quarter in dollar terms at $1,797 million (Rs 9,858 crore). Constant currency growth was 2.4% on a QoQ basis while volume grew by 3.8% during the same period, indicating pricing pressure. The company took a hit of 150 basis points at the operating margin level to 29.5%. Net profit increased by 3.5% to Rs 2,369 crore resulting in an EPS of Rs 41.46 per share for the quarter.
While there is nothing outstanding in the company’s results, there are signs that the worst may be over for the company, not withstanding management issues. V Balakrishnan’s moving out of the CFO role and being made the head of the company’s BPO, Finacle and the India business unit, has once fueled issues in the top management of the company.
This apart, the company has effectively utilised a part of its cash in an important acquisition, Lodestone, which has a marquee client base and results of which will start accruing over the next few quarters.
Further, utilisation excluding trainees has increased by 2.10% to 71.6%. Rising attrition prompted the company to hike wages for offshore employees by 6% and onsite employees by 2%. This has helped the company with attrition coming down to 20.5% as compared to 21.5% in the previous quarter. The company now has a headcount of 153,761, a net addition of 2,610 during the quarter.
Accenture’s results had already alerted the market on the growing competition in the generic IT market. Given this fact that Infosys’ efforts of increasing its focus on consulting by acquiring Lodestone will improve its margin and aid the company move up the value chain. Further, a key concern of the market that the company is sitting on its cash chest has been addressed by the acquisition.
With three quarters of pricing pressure persisting, many analysts feel that there is little downside from the present levels. Further, the guidance includes the hike in employee cost and captures the lower pricing points. Infosys trades at the same valuations it did despite making the fourth largest acquisition by any Indian company. Importantly, Lodestone brings with it 200 clients and better margins, results of which will be visible in coming quarters.
